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The State of Nonprofits: Report cites inflation and talent acquisition as chief troubles

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In 2022, the big story from nonprofit leaders was their concern with talent acquisition. This year, staffing concerns remain, but soaring inflation is a new source of worry.

The 2023 FORVIS State of the Nonprofit Sector Report, released Feb. 28, was conducted over the course of a month in mid-2022. Leaders from 195 U.S. nonprofits of all sizes responded to 30 multiple-choice and open-ended questions to provide the data.

The report notes that half of nonprofits are having difficulty delivering programs and services due to staffing shortages, even as 68% of organizations face increased demands for their programs and services.

Staffing problems persist despite 93% of nonprofits reporting that they are spending more on employee salary and benefits. More than two-thirds of leaders said they were currently trying to fill staff vacancies.

Respondents said their top concern was rising operating costs, followed by limited staff capacity, difficulty recruiting and retaining quality staff, inflation and staff turnover.

Dan Prater, senior management consultant at FORVIS and the author of the report, said there just aren’t enough people to fill seats these days.

“None of this is really exclusive to the nonprofit sector,” he said. “With COVID, people came to a new epiphany: They weren’t going to do a job anymore that brings constant stress and doesn’t meet the needs of their lives.”

Nonprofits, like the health care and education sectors, rose to meet the challenges of the pandemic, and now their workers are leaving.

Prater said another finding was a loss of revenue, with investment revenue down 41% – a blow to foundations, which support nonprofits.

The decline in revenue has been met by increased operational costs, the report found, specifically in salary and benefits.

A maturing industry
The increase in employee pay reflects an industry that is beginning to respond to the needs of its workers.

“What you find is that as the industry matures, the idea of running people through – letting them get experience and then get a better-paying job somewhere – is no longer a sustainable business model,” Prater said. “Like every industry, nonprofits had to provide better benefits and better care for employees, with more flexibility and more time off.”

The nonprofit sector employs more than 10% of the nation’s private workforce and is the third largest workforce of any U.S. industry, according to the 2019 Nonprofit Employment Report from Johns Hopkins University.

A year ago, a pressing concern for nonprofits was maintaining efficacy while working remotely. That’s not such a concern in the 2023 report, as many workers have migrated back to the office, and for those who haven’t, remote work and its processes are more familiar and less daunting, the report states.

Asked why they believe they struggle to recruit and retain employees, 69% of survey respondents cited lack of competitive salaries and benefits.

In a recent CEO Roundtable podcast hosted by Springfield Business Journal, Jaimie Trussell, CEO of Council of Churches of the Ozarks Inc., said pressure is a factor in this trend.

“In nonprofit, you are always on the edge of maxed out because people expect you to do all the things with less resources than your for-profit partners,” she said. “That’s just a stereotype and an expectation that most places have.”

Janet Dankert, president/CEO of Community Partnership of the Ozarks Inc., said nonprofits used to brag about their ability to do more with less and be very lean, despite the pressures this put on staff.

“That’s not necessarily the best perspective when you’re dealing with people,” she said.

The FORVIS report found 56% of nonprofits feel hampered in their ability to deliver programs and services because of staffing shortages.

Large and mid-level organizations knew just what to do to improve their recruiting prospects. Among survey respondents, all increased salaries, some by 10% or more. Small organizations found themselves less able to respond by boosting wages, and 22% of them did not offer higher pay.

Other steps taken were to increase workplace flexibility (14%), improve diversity, equity and inclusion (8%), improve internal advancement opportunities (5%) and improve workplace culture (3%).

Report rings true
Brian Fogle, president of the Community Foundation of the Ozarks Inc., said the FORVIS report echoes what his organization has heard from the 700-plus nonprofits that have funds with CFO.

“We keep hearing staffing, staffing, staffing, with difficulties in attracting and retaining workers,” he said.

Locally, Fogle said turnover among executive directors, noted in 2020-21, has stabilized, but now it is impacting development and fundraising professionals.

“There’s never been a real deep bench in Springfield to begin with, but it’s probably been the highest turnover I’ve seen as long as I’ve been here,” said Fogle, who has led CFO since 2010.

Last year, CFO released a study of the pressures facing nonprofit leaders. Fogle sees a focus on improving pay as a good step in alleviating some of those pressures, but next he would like to see a change in funding models.

“A lot of nonprofits still rely a lot on events, and those just wear people out,” he said. “That part of fundraising is hard work.”

Generational changes affect how people give, he said.

“I’ve heard several nonprofits saying younger donors aren’t going to those types of events where you dress up and buy a live auction item, like the baby boomers or greatest generation did,” he said.

Millennials and Generation Y donors are more likely to give online or through crowdfunding.

“They like the immediacy: Here’s the need, I want to help. I go to my phone, and it’s done,” he said. “We need to do a better job on meeting them where they’re at with how they prefer to give. We have some work to do there.”

Fogle, a former banker, said 2022 was challenging, as it was the first time since 1976 when bonds and equities were down.

“There was really nowhere to hide,” he said. “If you were being very conservative and put your money in fixed income – put it into AAA bonds – you lost money last year.”

Expertise at a premium
Prater said nonprofits must continue to invest in capacity, which includes having the employees and resources to do their work.

Dankert said a mindset change is needed, and nonprofit professionals shouldn’t be expected to give from their heart without regard to compensation.

“We’re a business just like anyone else,” she said. “I would like to see a shift in philosophy that says nonprofits should be competitive with other businesses as they do their work.”

Prater noted that donations are up, according to the 2022 Giving USA report on philanthropical spending. Giving by corporations was up by 24%, with giving by individuals up 5% and giving by foundations up 3%.

“Calculating the power of that increase doesn’t look nearly as pretty as you would expect,” he said, referencing rising operational expenses.

Even so, most nonprofit leaders, 58%, said they were somewhat pleased or very pleased about their financial position.

At the same time, actual financial pictures were mixed, with 40% of respondents reporting a year-over-year increase in net income and 48% experiencing a decrease.

The financial challenges faced by nonprofits are steep, according to Prater.

“It’s great to have vision, but vision without resources is delusion,” he said.


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